Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

06 August 2008

The Candidates’ Energy Plans I


Introduction
Assessing the Candidates’ Plans
Judgment
Flexibility
Pandering
Conclusion

Introduction

Energy is by far our most important domestic issue. Nothing else—even health care—comes close. Unlike health care, energy policy affects job creation, national security, foreign policy and the future of our planet.

Energy policy is and should be the central issue in this presidential campaign. That’s why Senator Obama’s energy speech on Monday may have been the most important of his campaign so far. For the first time it laid out his own personal views and analysis, as distinguished from those of his staff, which appeared on his Website in prose that is obviously not Obama’s.

The importance and complexity of energy policy demand more than one essay to analyze the candidates’ positions and their probable consequences. In this one, I suggest a general approach to analysis and apply it to three key points: (1) judgment, (2) flexibility and (3) pandering. In a second essay, I’ll apply the same analysis to the candidates’ specific plans for wind power, good batteries, solar power, and nuclear power.

Assessing the Candidates’ Plans

There is not much to distinguish the two candidates’ general approaches to energy. Both McCain and Obama recognize the impact of energy policy on economic health, job creation, national security, foreign policy and global warming. Both support a cap-and-trade program to reduce carbon emissions. Both want us to shed our oil addiction. Both address the chief present alternatives to oil: wind, solar, nuclear, and biomass. Both would promote conservation. Both understand to some degree the importance of good batteries to realizing the full potential of intermittent wind and solar power. Both have made a credible attempt to provide thoughtful, comprehensive policies.

The differences are matters of emphasis. McCain emphasizes drilling for more oil and nuclear power, specifically proposing to build 45 new nuclear power plants. Obama emphasizes wind and solar power and an upgraded electric grid to bring them to where people live.

Neither McCain’s nor Obama’s present energy policy is perfect. Each has significant defects.

In making offshore drilling a central element of his policy, McCain revealed a frightening tendency to pander to special interests on the most important issue of our day. That pandering casts doubt on his ability to resist the massive institutionalized corruption that for four decades has deprived us not only of an intelligent energy policy, but any national energy policy besides malign neglect. Once McCain’s heroic struggle with corruption was one of his personal selling points. Now he appears to have thrown in the towel, and on the most important issue facing us.

This is not the only flaw in McCain’s plan. Its almost total reliance on the private sector reveals the fetters of Republican ideology, which brought us to where are today. Although he recognizes the proven promise of nuclear power better than Obama, he has no understanding of the complete overhaul our of nuclear regulation needed to realize it. As an inveterate advocate for deregulation, he is hardly the man to undertake that overhaul.

Obama’s speech put strong emphasis on renewable energy, where it belongs for the long term. He began to recognize the central contribution that good batteries can make to effective use of wind and solar power. But Obama or his advisors still seem to fear nuclear energy, the only other advanced, non-carbon energy technology that is ready now, off the shelf.

These flaws are not surprising. Neither candidate is personally an energy expert. Each is growing and learning in this highly complex but vitally important field. Unfortunately, the signal-to-noise ratio in this field is exceedingly low. Firms with gigantic financial interests at stake offer all sorts of superficially attractive but specious arguments that make little economic or engineering sense when examined rigorously. We can’t really expect either candidate or his staff to sort through all of them in the midst of a grueling presidential campaign—far less one with so many meaningless but exhausting distractions as this one. The winner’s views will not ripen into anything like specific policy until long after the general election.

So how should we voters assess this choice between mixed bags? The right approach, I submit, is not to scrutinize the specifics. Far less is it to look for your favorite energy solution—be it nuclear, wind, solar, ethanol or drilling the hell out of what’s left of our oil reserves.

The right approach is to assess the candidates’ problem-solving skills in this field. At this preliminary stage we should not ask what specific solutions the candidates propose, because their laundry lists of “solutions” are so similar and may change. Rather, we should look at how they approach energy problems and seek to solve them.

Judgment

At present, we don’t know a lot about the candidates’ judgment in energy matters. But we do know some things. Apart from two instances of misplaced emphasis now largely corrected (see “Flexibility” below), I’m unaware of any serious mistake of judgment on Obama’s part.

Yet already McCain has made two serious mistakes in judgment. Far from correcting them, he appears to be digging in.

McCain’s first mistake is making more drilling for oil a central part of his energy policy. He wants to permit drilling in currently forbidden offshore and wilderness areas.

No one can credibly deny that opening up more territory to drilling would eventually produce more oil. That’s just common sense. But as a solution to our current energy crisis, McCain’s proposal is nonsense. The timing is wrong, the numbers are wrong, and the politics are massively counterproductive.

If we opened up all our territory to drilling without restriction, the first drop of new oil wouldn’t appear for almost a decade. My own reading of the Energy Department’s analysis says about ten years. Obama, in his usual cautious understatement, says seven. However you parse the numbers, it’s a long time.

This timing discrepancy is vitally important because an energy catastrophe of cataclysmic proportions could occur within the next seven years. If we are unable to pressure Iran to abandon its nuclear program, Israel may attack Iran and take out its nuclear facilities. If that happens, Iran has threatened to block the Strait of Hormuz, through which 40% of Mideast oil flows. If Iran did so, oil prices would probably double or triple overnight.

Drilling for new oil will do nothing to prevent that economic catastrophe or alleviate its effects because none of the new oil will be available in time. If we want to prepare for such a contingency or mitigate its effect, we are going to have to find alternatives to oil, not increase our dependence on it and investment in it. And we are going to have to do so as quickly as possible.

As for oil prices, more drilling on our territory will not lower them, ever. All the known oil in our untapped reserves amounts to less than 3% of the world’s reserves. With all the permission for drilling we can grant, we couldn’t bring it all on line at once, even ten years from now. Our own Energy Department’s analysis (which I’ve analyzed in another post) shows that increases in worldwide demand, for the foreseeable future, will exceed any additional supply from our new drilling. Therefore new drilling on our territory will never lower oil prices; it will only keep them from increasing faster than they would without the new drilling.

You might argue that reducing future oil-price increases a decade hence is a worthy cause. Maybe so. But that argument assumes that a decade hence we will still be in the same position of abject oil dependency in which we find ourselves today. In other words, it assumes that we will have wasted another decade in shedding our oil addiction. That’s not good policy.

Therein lies the central reason why McCain’s emphasis on more drilling is poor judgment. It’s bad policy and bad politics.

The term “oil addiction” is not just a clever metaphor. It’s the most accurate description yet devised of our national psychological, economic and political condition regarding energy.

For forty years we’ve bought the fairy tale that oil will always be there at reasonable prices. Not only that: we committed our fortunes and futures to that fairy tale by buying expensive cars that run only on gas. We built the plants to make those cars and a vast infrastructure of refineries and gas stations to serve them. These changes in our physical infrastructure are every bit as real as the biochemical changes that make a heroin user an addict or turn a heavy drinker into an alcoholic.

Concomitant psychopolitical effects followed. If you don’t believe that, read the popular comments to any blog or important media article on energy policy. You will find an appalling number of writers who think the solution to our energy crisis lies in: (1) shooting Al Gore, (2) shooting environmentalists, and (3) shooting anyone who believes windmills belong outside of Dutch farms. That sort of irrational, hyperemotional reaction is exactly what you would expect from an addict when you try to take away what he’s addicted to.

As even popular culture knows, the best way to shake an addiction is to go “cold turkey.” We can’t do that with oil because our economy would collapse. But somehow, we have to change our national mindset and prepare for a more independent future. We have to get 300 million addicts to change their behavior in a way that will require pain, effort, concentrated attention and sacrifice. Offering them one last fix is not the way to do it.

McCain must know this. He’s been in Congress for about a quarter century, and he’s no political dummy. But he’s willing to ruin the prospects of a national consensus for real change because his political consultants tell him he must differentiate his energy policy from Obama’s and make Obama look stupid. He says he’s willing to lose an election to win a war—and he accuses Obama wanting the opposite—but he’s not willing to give up a weak debating point to advance the cause of shedding our oil addiction by creating real political consensus for change.

The primary reason for our forty-year policy vacuum is political, not technical. We’ve had solid, workable nuclear technology for over thirty years and workable windmills for at least five. We could have had a good head start at ridding ourselves of our oil addition, if only we’d had the political will.

Insisting on a program that encourages wishful thinking and destroys political consensus for real change is about the most destructive thing any politician could do. But that’s precisely the effect of McCain’s drillmore proposal. It would do nothing in the short term, accomplish little in the medium term and impair long-term change by undermining the political consensus needed to make it.

Promoting more drilling is bad politics for yet another reason. It brings back all the old, futile battles between the fossil fuel industry and environmentalists. We fought that battle for decades, accomplishing nothing but inflaming mindless partisanship.

In the last few years, the fire began to burn itself out. Ranchers, farmers and evangelicals began to realize that environmentalists are not their enemies, that conservation and good stewardship of the Earth are good business and proper piety. They realized that energy and environmental protection are not an “either-or” proposition. We need both. Now McCain wants to inflame the same old controversy all over again, pitting drillers and their supporters against protectors of our coasts and wilderness. And he wants to do so for transient political advantage.

It would be one thing if the coasts and wilderness areas in dispute held our very last oil reserves. But they don’t. Millions of acres already leased are still virgin to exploration, let alone drilling. McCain’s insistence on granting new permits before exploiting the old ones is a manufactured controversy, designed to create temporary political advantage by stirring up the old energy-environmentalist divide. Those despicable political tactics ill become a man who says (on Iraq, not energy) that he would rather be right than president.

The second way in which McCain’s judgment on energy fails to measure up is his refusal to take a stand. When challenged on his adamant support for more drilling or for 45 new nuclear plants, he takes refuge in indecision. He says we should try everything.

But that’s a cop out. We don’t have the money, time or political will to try everything. We need to focus our attention on the best, quickest, cheapest and least destructive programs for shedding our oil addiction. We need leaders with the judgment and skill to identify those programs and quickly build a broad political consensus around them. We need people with the executive skill to enact and execute the government research, government research grants, tax breaks and subsidies needed to get those programs rolling as quickly as possible. We can’t possibly support every solution, not with the deficits Dubya left us.

Flexibility

Because of its complexity and breadth, the field of energy is fluid. A few years ago, virtually no one would have predicted that oil prices would double by 2008. Few would have predicted that lithium-ion batteries, then used for hand-held consumer electronics only, might one day make electric cars a practical reality, after a century of trying. Few would have predicted that wind power would become the fastest growing energy source globally, and that the United States, despite all its doubters and nay-sayers, would take the global lead in wind energy production this year. Yet all these things are now true.

What all this tells us is that energy policy must be flexible. A leader in this field must not get wedded to a particular approach, either intellectually or politically. He must be clever, agile and constantly willing to support or try new approaches as they emerge from scientific research, industrial innovation, economic change, or geopolitical necessity.

Flexibility is not the same as indecision. McCain’s “let’s do everything!” approach is impractical because we don’t have the money, time, resources or political will for it. Leaders have to choose. But if a more effective approach should emerge from circumstances, or simply from having better information, a good leader should be flexible enough to explore and support it, without abandoning promising initiatives already under way.

Recent events suggest that Obama has that sort of flexibility. His earlier Website supported two ineffective approaches: (1) corn-based ethanol and (2) giving far more credence to the distant promise of “clean coal” than it deserves. I speculated that these misplaced emphases might have reflected an incomplete transition on his staff (and perhaps in his own thinking) from the needs of his home state of Illinois, where ethanol and coal are important to voters, to solving problems for our entire nation and our planet.

Apparently my speculation was correct. In his speech Monday, Obama pivoted toward better policy in both respects. Nowhere did corn-based ethanol appear in his speech, although praise for cellulosic ethanol did. More important, his speech relegated “clean coal” to the subordinate position it deserves; he mentioned it only after nuclear energy.

These changes suggest that Obama can learn and grow and that his heart is in solutions that work. In contrast, McCain’s support for more drilling only grew more shrill and partisan as experts subjected it to withering criticism on solid economic ground.

Obama’s speech Monday also showed admirable flexibility on the drilling issue. Although concluding (rightly) that more drilling is not a rational or effective response to the gravity of our energy challenges, he said that he would support drilling as part of a comprehensive energy bill containing more effective policies. In making that concession to McCain’s partisan bickering, Obama said of a pending bill:
    “I am not interested in making the perfect the enemy of the good—particularly since there is so much good in this compromise that would actually reduce our dependence on foreign oil.”

Rather than seek debating points like a frat boy, Obama acted like an adult. He reasoned that a good policy with some ineffective (or even counterproductive) features is better than no policy at all.

That was a Solomonic judgment. Obama was and remains willing to compromise his (correct) judgment that more drilling won’t do much in order to pass a bill that will. McCain, in contrast, wants all or nothing. He would split the baby, killing it, to get his way or to score political points. Who’s the real problem-solver here?

Pandering

With the public terrified and outraged over high gas prices, it’s almost impossible for a politician not to pander. Both candidates have done it. What voters should ponder is how much and to whom they pandered and how their pandering affects the probability of achieving real solutions.

McCain’s proposal for a summer gas-tax holiday is economic nonsense. If history is a guide, producers would absorb most of the tax reduction, passing little on to consumers. To the extent the holiday actually reduced prices at the pump, it would increase demand, in the prime summer driving season to boot! Increasing demand doesn’t exactly help lower prices. Yet if temporary, the tax holiday probably wouldn’t do a great deal of harm. It’s a stupid idea, but it’s not shooting yourself in the foot.

Obama’s proposal for a $1,000-per-consumer rebate is similar. He would finance it with a tax on oil companies’ “windfall profits.” McCain claims the tax would kill big oil’s incentive to find more oil. But that claim, too, is nonsense. Oil companies’ recent profits have been so huge that no one ever expected them, let alone made plans to use them for exploration. Obama’s windfall profits tax would take only a portion of them. Anyway oil companies’ problem is not lack of funds; it’s dwindling reserves. No amount of money can create oil in the ground where none exists. Obama’s pander would produce a harmless, minor redistribution of wealth that would help consumers get through the winter. It would cause no lasting harm but produce no great or lasting benefit.

So far, one for one. Each candidate made a minor, relatively harmless pander whose effect, if implemented, would be temporary and inconsequential.

But McCain’s pander on drilling is of a different character. As discussed above, it’s decidedly harmful, and it’s a central part of his present energy policy. It won’t produce any effect in the short term. It won’t protect us from an Ahmadinejad apocalypse. It won’t reduce gas prices at all, although it might slow their rate of increase for a couple of years in the medium turn. But it will impair our ability to devise long-term solutions by distracting us from them and reducing our ability to achieve political consensus around them.

Why did McCain propose this bad idea, and why does he insist on it? One possible reason is to manufacture a controversy with Obama and thereby distinguish his energy-policy “brand.” A second is to pander to the oil companies, who’ve rewarded him with massive campaign contributions.

Both of these reasons seem likely, and it’s hard to divine any other. Oil companies have lots of money, but they don’t control many votes. McCain could have been pandering to rabid “oil at any cost” enthusiasts or diehard anti-environmentalists. But they’re all on his side anyway. At least they’re not going to vote for Obama.

Maybe McCain is pandering to voters stupid enough to believe in “jawboning.” Some people have accepted the fantasy that McCain’s mere advocacy of more drilling brought oil prices down instantly. They believe he was responsible for the recent retrenchment of prices on the oil futures market.

But that’s nonsense. Although the Fed’s pronouncements sometimes can move financial markets (because they hint at future monetary action), market prices don’t respond to politicians’ blather, especially prices for something as important and widely traded as oil. Johnson and Nixon tried “jawboning” to fight inflation in the sixties and seventies and got nowhere. What dropped oil futures prices recently was two economic elephants in the room: (1) a drastically slowing economy, which reduces demand, and (2) solid evidence that, despite its inelasticity, demand for oil in the United States is actually shrinking for the first time ever.

Conclusion

One of the raps against Obama is that he’s all talk and no action. He can make a good speech, the story goes, but he can’t produce the bipartisan progress that he promises.

With regard to energy, Obama has just shown precisely how he can and will make progress: by acting like an adult and making reasonable compromises. Although believing (rightly) that McCain’s drillmore “solution” would be counterproductive, Obama would accommodate it along with solutions that would actually work. In contrast, McCain continually and insistently beats the drum for his drillmore plan, despite near-universal condemnation by economists. With that difference in approach, who do you think is more likely to get the job done?

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